Determine the of sales (units) that would be y under Break-Even Sales Under Pres

Question

Determine the of sales (units) that would be y under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 99,900 units at a price of $99 per unit during the current year. Its income statement for the current year is as follows $9,890, 100 4,884,000 $5,006,100 Cost of goods sold Expenses Selling expenses Administrative expenses $2,442,000 2,442,000 Total expenses 4,884,000 $122,100 The division of costs between fixed and variable is as follows Variable Fixed Cost of goods sold Selling expenses 75% expenses Management s consider ng a plant expar son program that wil permit an increase of $792,000 in yearly sales. The expansion will increase fixed costs by S 79,200 but w?? not affect the Required: 1. Determine the total variable costs and the total fixed costs for the current year. Enter the final answers rounded to the nearest dollar

Explanation / Answer

Total Variable costs$ 6471300( $9890100-$3418800)

Total Fixed Costs$ 3296700(see working note)

2. Unit Variable Cost =$ 64.78/unit($6471300/99,900units)

Unit Contribution margin$ =34.22/unit($ 3418800/99,900units)

3. Break Even Sales (in units) in the current year:

= Fixed Cost/contribution per unit

=$ 3296700/$ 34.22 perunit=96339 units

4. Break Even Sales (in units) in the proposed plan

=Fixed Cost/contribution per unit

=$ 3375900/$34.22perunit

=98653 units

5. Amount of sales (units) required to earn an income of $ 122100 is 102215 units

Total Sales required would be $ 3498000*$9890100/$3418800=$ 10119214.29=$ 10119215

Number of units =$ 10119215/$ 99=102215

6.Maximum Income from operations possible with the expanded plant is $ 316677.77=$ 316678(see working note)

7.If the proposal is accepted and sales remains at the current level then the income from operations would be $ 3418800(Total contribution)-$3375900(fixed costs)=$42900

8. Solution is option (b) : In favour because there is a possibility of increasing the income from operations.(see working note)

Working Note:Statement showing the Current and Proposed Situations

Situations

Current

Proposed

Sales revenue

9890100

(99,900 units*99 per unit)

$10682100

Less: Variable production

Cost

$ 3418800

(99,900 units*$34.22/unit)

$3692577.77

Less:selling and distribution exp

$ 1831500

($2442000*0.75)

$1978166.66

Less:Administration overheads

$ 1221000

($2442000*0.5)

$1318777.77

Contribution

$ 3418800

$ 3692577.8

Less: Fixed costs

(production+ selling and distribution+

Administration)

($ 3296700)

1465200+610500+1221000)

$3375900

($3296700+

$79200)

Net Income

$122100

$316678

(rounded off)

Situations

Current

Proposed

Sales revenue

9890100

(99,900 units*99 per unit)

$10682100

Less: Variable production

Cost

$ 3418800

(99,900 units*$34.22/unit)

$3692577.77

Less:selling and distribution exp

$ 1831500

($2442000*0.75)

$1978166.66

Less:Administration overheads

$ 1221000

($2442000*0.5)

$1318777.77

Contribution

$ 3418800

$ 3692577.8

Less: Fixed costs

(production+ selling and distribution+

Administration)

($ 3296700)

1465200+610500+1221000)

$3375900

($3296700+

$79200)

Net Income

$122100

$316678

(rounded off)

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